Covid-19 Lockdown in Bulgaria: Arbitration as a Substitute for Courts

Bulgaria declared a public health emergency on 13 March 2020. The Covid-19 emergency has affected multiple government services in Bulgaria, including courts. With certain exceptions, these have shut from 15 March 2020 to 13 May 2020.

The court closure may well be extended and when service is resumed, a backlog is likely.

Arbitration as a solution

How can you resolve a dispute in the meantime?

If a dispute is urgent and a party needs a binding decision on it, the only viable solution is arbitration in Bulgaria or abroad. The arbitration may not necessarily complete by the time courts resume business, but it may give preliminary results (including an award), and is almost certainly going to complete its course sooner than state courts, even if they reopen in April 2020.

Arbitration options: Bulgaria and internationally

Of the two leading institutional arbitrations in Bulgaria - the Arbitration Court at the Bulgarian Chamber of Commerce and Industry (BCCI) and the Arbitration Court at the Bulgarian Industrial Association (BIA), BCCI has stopped initiating new proceedings and suspended open court hearings until 13 May 2020 (the current end date for the state of emergency), but as of 23 March 2020, BIA has not.

Meanwhile, by virtue of s 3(1) of the Measures and Actions during the State of Emergency Act ('State of Emergency Act'), in force since 13 March 2020, the running of time in arbitration proceedings in Bulgaria is suspended. This means for example that a new arbitration proceeding may be opened, but any time limits thereunder, such as for reply which the opposing party would be entitled to, are suspended until the end of the state of emergency, when they would resume to run.

In this sense, a party which begins arbitration proceedings during the state of emergency would have a certain time advantage compared to state courts (insofar that even filing a claim with a state court is impossible in practice), but not the one that the party would otherwise expect.

Even if all domestic Bulgarian institutional arbitration courts paused, there are the options of institutional arbitrations seated in other jurisdictions (e.g. LCIA in London or ICC in Paris – both of which have confirmed that they continue to accept new requests for arbitration and do so electronically). It is also possible to start an ad hoc arbitration (on the difference between institutional and ad hoc arbitration, see below).

The limitations under s 3 of the State of Emergency Act do not pertain to arbitrations outside of Bulgaria, nor have at least France or the United Kingdom applied similar rules to their arbitrations. The parties could resolve their dispute without having to wait for the state of emergency’s end.

To what extent the rules for an ad hoc arbitration with a seat in Bulgaria may dispense with time limits at least in the initial phase (and therefore sidestep the effect of s 3(1) of the State of Emergency Act)) remains unclear.

The determinations of disputes issued by arbitral tribunals are applied in Bulgaria broadly identically to judicial determinations of disputes. Domestic and international arbitration tribunals are also treated equally, provided certain conditions are met by the tribunal, including that its seat is in a New York Convention country (all European states and a total of 161 countries globally are).

The arbitration clause

Even without a pre-existing arbitration clause, arbitration can be agreed on after the dispute arises. With their arbitration agreement after-the-fact of dispute, the parties can also agree on the arbitrator(s), rules, seat, language, and much more.

Are all disputes arbitrable?

All disputes which are capable of monetary valuation, excluding those regarding ownership or possession of real estate, financial consequences of divorce, employment or consumer contracts, are arbitrable. Arbitrations can be seated abroad, even if the parties’ business dealings touch predominantly Bulgaria or a third country, but from Bulgarian law’s perspective at least one of the parties needs to have a connection to an international element (e.g. to have its effective management abroad).

Why arbitrate?

Except that it may currently be the only option to bindingly solve on-going disputes, arbitration also has advantages to traditional court proceedings, such as:

  • Speed: arbitration is a single-stage proceeding, the award is final and the dispute can be resolved faster;
  • Flexibility: parties can tailor the arbitration to meet the specific requirements of the dispute;
  • Confidentiality: the proceedings and award are confidential by design;
  • Control: the parties can agree on arbitrator(s) they believe is/are neutral;
  • Internationally enforceable award: typically, an arbitration’s decision can be enforced in almost all jurisdictions in the world a lot more easily;
  • Cost: arbitration may be cheaper than prolonged court proceedings;
  • Certainty: arbitration does not exist in a vacuum. Parties may seek assistance from state courts if they feel their legal rights and/or interests have been infringed.

Institutional vs ad hoc arbitration

Usually arbitrations are institutional, i.e. they are part of continually existing institutions, akin to regular state courts.

However, even if the institutional arbitrations suspend for the duration of the Covid-19 pandemic, or in any other case, parties can still elect an ad hoc arbitration. This is an arbitration specifically set up by the parties for their concrete dispute.

It does not matter if the award is issued by an institutional or an ad hoc arbitration: it is just as enforceable and legally binding.

A disadvantage of ad hoc arbitration may be that parties cannot automatically rely on pre-provided rules of arbitration and on the institutional support of the Secretariat or other institutional body supporting the tribunal, but they may incorporate these rules to their specific proceedings adjusting them as necessary. The parties will need to find a method of appointing arbitrators acceptable to them.

Further questions

NBLO regularly advises and represents parties to arbitrations and is involved in the enforcement of arbitral awards. If you have any further questions relating to arbitration and dispute resolution in the context of Covid-19, please do not hesitate to contact us.

Authors: Yavor Markov & Kamen Shoylev

(1) E.g., the London Court of International Arbitration (www.lcia.org).

(2) International Court of Arbitration to the International Chamber of Commerce (https://iccwbo.org/media-wall/news-speeches/covid-19-urgent-communication-to-drs-users-arbitrators-and-other-neutrals/).

(3) The vast majority of the world’s economies are signatories to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which makes this possible.



Recent work:

Bulgarian branch set up for Adam Smith International

NBLO assisted the UK-based consultancy Adam Smith International in setting up an active Bulgarian branch whose presence would be engaged in the highly lucrative Bulgarian development market.

© New Balkans Law Office 2020